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Canada got the last hurrah at the Celebration of Light Saturday evening, closing the three-night event with a winning display. Canada was declared the winner of the event, with Brazil and China finishing second and third, respectively.

Vancouver Sun business columnist David Baines.

Photograph by: Vancouver Sun files
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In my last column, I told the sad story of a Bowen Island couple who were victimized by a leveraging strategy that went awry.

On the recommendation of an Ontario mutual fund salesman, the couple borrowed $750,000 and invested the money in mutual funds. Cash flow from the funds was supposed to be sufficient to service the loans, and provide some extra money to finance their meagre existence.

However, when the market meltdown came, the value of the funds plunged and the lenders made margin calls, forcing the couple to liquidate the funds at depressed prices. When the dust settled, the couple still had $285,000 in loans, but no investments.

I have seen this sort of scenario many times before. The worst involved Abbotsford mutual find salesman Sy Mytting, who got dozens of clients into leveraging strategies that were inappropriate and ultimately backfired.

The Investment Industry Regulatory Organization of Canada cited Mytting with respect to five of those clients and eventually suspended his licence. Mytting’s firm, Berkshire Securities (which by then had been acquired by Manulife Securities) compensated all five clients.

While this seemed like a good resolution, it was not. There were many other clients who hadn’t been compensated. In many cases, they didn’t even realize they had been abused by Mytting: they attributed their misfortune to bad market conditions.

It wasn’t until they read my reports that they understood what had happened to them. In at least half a dozen cases, they demanded compensation from Manulife, and got it.

In my view, the moral of this story is quite clear: when regulators find evidence of inappropriate leveraging strategies, they must ensure that clients are notified so they are in a position to assess their situation and, if warranted, seek compensation.

Which brings me to a settlement agreement that the Mutual Fund Dealers Association of Canada has just concluded with Portfolio Strategies Corp.

Portfolio Strategies is a Calgary-based mutual fund dealer with more than three dozen branches and sub-branches in B.C.

In 2009, the MFDA conducted an audit of four of the firm’s branches, including one in Richmond, and found “a number of compliance deficiencies,” including the failure to supervise leveraging recommendations.

“As a result …. some leveraging recommendations which may have been unsuitable were processed by the respondent without proper supervision,” the agreement states.

“Those leveraging recommendations may not have been subject to full supervisory scrutiny in accordance with the respondents’ current policies and procedures.”

To settle the matter, the firm agreed to pay a $35,000 fine and $5,000 in costs. It also developed a “plan” to address existing leveraged accounts. If it doesn’t comply with the terms of that plan, it may be subject to further disciplinary action.

Sounds comforting, but what does it all mean? We don’t know whether MFDA auditors actually found cases of inappropriate leveraging, and if they did, how many cases they found.

We don’t know the terms of the plan. We don’t know what inquiries the firm is required to make or what notice it has give to clients. And we don’t know what compensation procedures, if any, there are. Neither the MFDA nor the firm would discuss the matter.

Another disturbing aspect of this settlement agreement is that the plan could uncover serious cases of client abuse, but the firm will not be subject to any further disciplinary action as long as it complies with the terms. Depending on what turns up, that $35,000 fine could look rather paltry.

I think the message to clients is clear: just because regulators are on the scene, don’t take anything for granted. If you have levered your investments on the recommendation of this firm – or for that matter, any firm – you should take the initiative, review the situation and, if warranted, press the matter with the firm and the MFDA.

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On Jan. 16, I noted that the TV reality show, The Real Housewives of Vancouver, had introduced a new cast member: Ioulia Reynolds, a “Russian-born beauty” married to “a wealthy venture capitalist almost 20 years her senior.”

I identified her husband as 45-year-old Vancouver stock promoter Damien Reynolds, who has served as a director of dozens of junior companies.

I also noted that the B.C. Securities Commission had alleged that, while serving as president and CEO of TSXV-listed Coltstar Ventures Inc., Reynolds had artificially depressed the company’s share price on two occasions so he could acquire shares and options at artificially low prices.

Reynolds denied the allegations. A hearing was held in May, and on Wednesday, the hearing panel ruled that BCSC enforcement staff had “failed to provide clear and convincing proof” that his stock sales “resulted in, or contributed to, an artificial price.”

Indeed, the allegations appear to have been based on very flimsy evidence. There were two trades in question: one on March 12, involving the sale of 20,000 shares, and one on March 19, involving 10,000 shares. All were sold for 30 cents or less.

Both trades depressed the share price, but the panel said it was not necessarily an artificial price. Trading was so thin that almost any sale would have depressed the share price. As far as motive was concerned, the panel said there were “reasonable explanations for his trades other than an intent to manipulate the market.”

Reynolds made the trades through his mothers’ account, over which he had trading authority, but the panel said he made no attempt to hide the fact that he was an insider of the company. On the contrary, he made it clear to the dealer who conducted the trades that he was an insider.

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